Rio's revenue fills a pot of gold

Barry FitzGerald

Australian iron ore arrives at the port of Rizhao in eastern China. Photo: AP

RIO Tinto continues to make money hand over fist despite global economic jitters, with the Anglo-Australian mining heavyweight able to reduce its debt by $US1 billion in the space of eight weeks.

The debt reduction to $US7.6 billion ($A7.4 billion) came despite the cost of the group's accelerated share buyback program and its continued heavy investment in a range of growth projects at a cost of $US27 billion.

But Rio managing director Tom Albanese has sounded a note of caution in a media briefing ahead of an investor presentation in London and New York.

''Consumer sentiment is now cautious and physical markets are softer than they were six months ago, reflecting concerns over the health of the the OECD economies and persistent volatility in financial markets,'' Mr Albanese said.

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''While there are signs of nervousness, the lack of inventory in the supply chain suggests that the impact of the current economic concerns on our business will be limited - unless, of course, the financial markets substantially deteriorate.''

While Rio expected to see more volatility ahead, supply and demand conditions pointed to commodity prices and markets ''staying strong'', he said.

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Underpinning that outlook is Rio's assessment that a policy-induced hard landing in China ''remains unlikely this year''. As the world's biggest consumer of mineral commodities, its demand growth remains high despite efforts to slow overheated parts of the economy, Mr Albanese said.

In the longer term, Rio continues to predict that consumption of most of the commodities it produces will double in the next 15 years. ''But the industry as a whole is finding it tough to get that new supply on stream to meet this new demand'' Mr Albanese said.

He said a ''whole range of challenges were still out there'', ranging from obtaining approvals, labour and equipment shortages, challenging ore bodies and expectations of landowners and governments.

''And the volatility we are now seeing in the financial markets will probably curb availability of credit and financing for new projects. That will only slow down further the creation of new metal supply,'' he said.

Uncertainty in the financial markets has triggered a sell-off in base metals, with copper slumping to an 11-month low. But the bulk commodities of iron ore and coal had remained at near record levels, thanks to Chinese and Indian demand.